Haley's Poker Blog

No bad beats, but still a poker blog... hence the anguish.

Friday, May 21, 2010

Just Conjecturin', Volume 17: The Real Story of the UltimateBet Refunds

By the time all was officially said and done in the UltimateBet scandal, two waves of refunds had been issued, for a combined total of over $22 million. That number alone is staggering, and the exact number of players to whom refunds were issued has never been released. It was, by any definition, an industry-changing episode.

How the $22 million amount was determined and how it was distributed to cheated players is something that's been answered only in overly general, often inadequate terms. The more specific answer begins with a court deposition given by onetime UB programmer Uri Kozai, who was the man finally tasked with developing a refund method for players after other options fell through. Despite being a programmer (and therefore automatically being cast under the general net of suspicion surrounding the UltimateBet affair), Kozai appears to have had no connection to the cheating itself. [Kozai does remain connected to secondary firms still pursuing interests related to Cereus and the old Excapsa matters, and is of course among the many Excapsa shareholders outed through the efforts of a major Excapsa executive seeking leverage, back in the day.]

The cheating, more specifically the surreptitious code that allowed its users to spy on other players' hole cards in real time, was known internally as "God Mode", not the more official-sounding "AuditMonster1" and "AuditMonster2" tags listed in the final Kahnawake Gaming Commission report.

Not only did the hidden God Mode exist long before Kozai entered the scene, but Kozai himself was reported to be "livid" after being clued in as to the code's secret location. Kozai was tipped off, allegedly, by legal counsel to one of the other UB parties ensnared in the affair, this as pressure from the outside for a complete explanation continued to mount.

Ever more cheating accounts were uncovered and the amount needing to be refunded grew and grew, and this was the crux of the $81 million lawsuit filed by official purchaser Blast-Off Limited against Excapsa, the original UB owners, on the basis of Blast-Off having purchased "damaged goods". One round of refunds totaling about $7 million had already been issued, though that was clearly inadequate in the face of additional uncovered cheating accounts.

The scandal's scope grew ever wider, and as the larger second wave of accounts was acknowledged, the span of time that the cheating included was stretched back all the way to 2003. The $22 million was a very real number as estimated by Kozai, based on his examination of the suspect accounts, and is likely the exact figure Kozai himself listed in his deposition in the Blast-Off/Excapsa battle. The deposition is buried deep within the many documents connected to the liquidation of Excapsa. The figure within Kozai's deposition suggesting the total refunds needed was redacted from publicly available documents, meaning it might not match to the penny the $22 million that was refunded, but since Kozai's figures were those used both to compute the refunds and to resolve the "damaged goods" legal battle between Blast-Off and Excapsa, the two can be presumed to match.

In one light, one could say that the $22 million returned over both rounds of refunds was an honest, good-faith effort to compensate all the cheated players -- not forgetting, of course, that Blast-Off expected Excapsa's shareholders to pay for it. [As it turned out, an additional 24 million shares of Excapsa stock were annulled as part of the final legal deal. The owners of those shares and the annulment's relationship to the earlier, more publicized stock forfeiture connected to Russ Hamilton is a topic for a future post.]

In another light, however, one could also say that the whole $22 million in refunds was a giant, approximately-shaped band-aid slapped on the scandal in the hopes that it was enough to make the pressure go away. Not quite a sham, but not quite true, either. It's best described as a desperate measure employed to give all the shareholders -- on both sides -- at least the chance to move forward and continuing collecting revenue from players.

The real story is this: Despite the enormity of the amount refunded, the individual refunds could not possibly be correct, in whole in or in part, and there is likely no affected player who ever received the exact refund that he should have received. Many players received nothing or not enough, while there must be others who received too much.

Kozai's formula involved looking at the net long-term profit of each of the cheating accounts known at that time, adding those accounts' profits together -- which is where the $22 million figure came from. The matching funds, thus secured, were then distributed on a flat-line percentage basis to all player accounts that showed a net loss in action against those cheating accounts.

Kozai's method, as mentioned, was a last resort, and it involved no specific analysis of the hands themselves. It was utterly impossible for Cereus to determine what hands involved cheating by a God Mode-using account, and what hands didn't which isn't to say they didn't try. Cereus even enlisted the help of a World Series of Poker Main Event world champion -- one not named "Hamilton" or "Hellmuth" -- who looked at thousands of hands and finally gave it up as a lost cause. At that point there was nothing left to do but use Kozai's calculations.

So why was it impossible to go back into the records and determine more specifically who was cheated, when, and for how much? Because of this: The God Mode tool was written early on in UB's history, and it was written in such a way that it stood outside of UB's standard cache of auditing tools. Neither UltimateBet in the days before the merger with AP, nor Cereus today, have ever had any capability to track exactly when God Mode was being used. Worse, there were accounts that were used both for cheating and for innocent, straight-up play, and the real play and the cheating play within these accounts were intertwined over months, even years of action. The end result was a morass that defeated all detailed attempts at a hand-by-hand or session-by-session reckoning of the affair.

Players who still hope to receive a to-the-penny accounting of the cheating that took place at their tables will be perpetually disappointed, because no such accounting is possible. Cereus COO Paul Leggett stated, in a recent interview, "[E]verybody got every penny back...." While a huge amount of money was refunded, the fact that the God Mode play could not be tracked internally makes Leggett's statement a frivolous claim. Other factors weaken the claim even more, including the probable existence of additional cheating accounts never included in the calculations, along with entire secondary cheating episodes not acknowledged to date.

Next time out it's a re-visit to the topic of the hand histories provided to cheated UB players.

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